Mid-range housing increasingly harder to find in DuluthThe good news: Local employers are hiring new workers. The bad news: Those workers are having a tough time finding the kind of housing in Duluth that they expect in a medium price range.
By: Peter Passi, Duluth News Tribune
The good news: Local employers are hiring new workers. The bad news: Those workers are having a tough time finding the kind of housing in Duluth that they expect in a medium price range.
Christopher Eng, business development director for the city, describes Duluth’s housing dilemma as a sign of otherwise good things happening in the local economy.
“We’re at a point in time where the economy is growing and we’re adding jobs,” he said. “But we’re also going to need to add more of a housing component in order to be successful.”
As employers step up their hiring, more pressure is being placed on a housing market that’s already stressed.
Eng pointed to a number of employers adding jobs in Duluth, including players in the health care, engineering, aviation, information technology, retail and manufacturing sectors.
“The supply of houses in the $150,000 to $250,000 range has pretty much dried up,” said Trisch Kroening, a real estate agent with Coldwell Banker Realty in Duluth.
Dave Nolle finally closed on a home after a seven-month search that included five separate unsuccessful offers on other properties in Duluth.
“I had $200,000 in my head as a target when we first started to look. But there was just nothing there,” he said, referring to the local inventory of homes in his price range as “abysmal.”
On Thursday, the Nolles closed on a three-bedroom, 1¾-bath residence in Duluth’s Lakeside neighborhood. The price was $259,000.
It was more than he had hoped to spend, but most of the less-expensive homes he had considered were in need of significant upgrades, said Nolle, who works as executive and CEO of the Voyageurs Area Council of the Boy Scouts.
The house Nolle bought was built in 1925 and had received two subsequent additions. Nolle said he looked into building or buying a new home but found it would be too expensive.
Amber Goodspeed, a high school teacher, said she’s been looking for about a year to buy a home in Duluth costing $120,000 or less.
“I make too much money for the Land Trust homes available in Duluth,” she said. Nevertheless, she noted that most houses found within her price range were either fixer-uppers or were in neighborhoods she prefers not to live in.
This old house
A housing study recently commissioned by the city notes that Duluth struggles with a particularly old housing stock.
The Duluth Area Multiple Listing Service found that the average construction date for homes sold locally last year was 1940. The average construction date for homes sold during the first five months of this year was 1939.
Analysis by Maxfield Research Inc. noted: “The majority of homes listed for sale in Duluth (65.6 percent) are priced at $199,999 or less. Although this price appears to be affordable, many of these homes are quite old and require a significant amount of upgrading.”
Eng said Duluth’s tight supply of attractive middle-market housing, both owner-occupied and rentals, could put the city at a disadvantage to other communities.
“We need to attract the talent to support existing companies and those expanding into Duluth or we will get crushed,” he said, noting that adequate quality housing is a must.
Dan McGinty, chief administrative officer for Essentia Health, said he’s pleased the city has turned its attention to the issue of worker housing.
“I think this is something the whole community can get behind,” he said, observing that everyone should be concerned about the need for more housing options in the $100,000 to $250,000 range.
McGinty said he’s unaware of anyone who has turned down a job offer from Essentia because of housing concerns, but he said a number of people who have come to work for the region’s largest health-care provider have been extremely frustrated by the difficult search for local homes that suit their needs.
“We often hear people can’t find what they’re looking for. They’re busy and don’t have time to put a lot of sweat equity into a 100-year-old home. They want to focus on their jobs,” he said.
To help employees find homes near their work, Essentia has offered down payment assistance of as much as $2,000 to some staff members moving into select neighborhoods, such as Duluth’s Hillside, Lincoln Park and West Duluth.
Competing for talent
Duluth employers must compete for talent against other communities that boast newer housing. McGinty said many of the same people offered employment by Essentia in Duluth often have job opportunities in places such as Rochester or Fargo, as well.
McGinty said the city also needs a good supply of reasonably attractive rental units, especially as a number of younger employees embark on their careers carrying substantial student debt that can make home ownership impractical at first.
“There seem to be a lot of high-end rentals and a lot of low-end rentals available, but not much in the middle,” McGinty said.
Pete Stone, manager of operational support for Lake Superior Consulting Inc., an engineering firm based in Duluth, has been hiring aggressively for the past eight to nine months and now has about 250 people on its payroll. While the firm’s employees have reported housing challenges, Stone said that hasn’t been a serious impediment to growth yet.
He said that some younger, single employees who had trouble finding housing have resorted to renting rooms in co-workers’ homes.
“It’s been somewhat of a hardship, but somehow people are making it work,” Stone said.
Some employees have been undaunted by the prospect of buying an older home in need of significant work, but Stone observed that not everyone wants a house that becomes an ongoing project.
“Housing is of significant importance to employers,” he said. “If there’s not an adequate supply of good housing, it will be difficult to hire people.”
Duluth comes up particularly short when it comes to the supply of mid-market new housing.
The Maxfield housing report found: “New construction homes are generally priced in the $280,000 to $400,000-plus range.” That’s well beyond the budgets of many working families.
When the housing market crashed, many area builders shifted their attention to helping clients remodel existing homes, said Chelle Eliason, executive officer of the Arrowhead Builders Association.
Those builders who have remained active with new construction or who are wading back into it generally have tackled only a handful of new homes per year, mostly on the upper end of the cost spectrum where the margins have been stronger, she said.
She contends these new upscale homes have a beneficial ripple effect on the larger market.
“Just because most of the new construction has been at the higher end of the market, that doesn’t mean it hasn’t helped with the supply of affordable housing,” she said, noting that often people who are trading up to a more expensive house put a more modest residence on the market.
“I think we’re matching the market needs pretty well right now,” Eliason said.
But Kroening said the city could seriously use more new construction in the $150,000 to $250,000 range.
The Maxfield study noted that Duluth is nearly devoid of new, ready-to-go “spec” housing. Most local new homes are presold before work on them begins or are snapped up before completion.
Another complication underscored by the Maxfield report is that the appraised value of newly built homes in the Duluth area often falls short of covering the true construction costs.
Eliason said the disconnect between appraisal value and cost is not just a local issue. She explained that when the housing market crashed and many foreclosures and short sales pushed additional properties onto the market, the surge in supply depressed prices.
Both lenders and appraisers became more conservative as a result, forcing would-be buyers to come up with larger down payments. This, too, made it more difficult to finance new construction.
“It wreaked havoc on the housing market, and particularly on new construction,” Eliason said.
However, with the recent strengthening of home prices, she said the picture looks much brighter for many area builders this summer.
Eng noted that most local builders put up five or fewer homes per year. He expressed hopes they could be encouraged to step up construction, but he also raised the possibility of attracting new builders who specialize in larger housing developments and the economies of scale they bring.
If the local job market continues to heat up and the need for more affordable housing increases, Eliason suggested local builders will respond. But she also agreed that most area builders aren’t set up to crank out 10-plus new houses a year.
Eng cited the recent housing report as evidence that Duluth has ample sites for additional residential development.
“The question is: How do you incentivize builders to build more new homes?” he said.
“If nothing else, we hope that talking about this housing issue gets builders excited about the opportunities here in Duluth,” Eng said.
Tim McShane, a vice president at Republic Bank and recent appointee to the Duluth Economic Development Authority, said the city is right to look at its housing needs.
“I have had discussions with recruiters, Realtors, mortgage lenders and buyers. Based on those conversations, anecdotally, there is significant need for quality work force housing in both the rental and sales market,” he said. “It sounds as though expectations of out-of-town consumers (buyers) are generally not being met.”
“The fact that we are having this discussion is encouraging, as it evidences a general demand for quality housing by people moving into our community from outside the area,” McShane said. “It is becoming increasingly apparent that a key to our community’s success rests with our ability to satisfy the housing needs of those wishing to reside here.”